Operating Crypto ATMs – What Impact does BaFins Clarification have on this Business Modell?

Last week, BaFin published clarifications regarding the operation of crypto ATMs via its website. In this rather short publication pointed out the supervisory authority that the public placement of ATMs at which cryptocurrencies (e.g. Bitcoin, Dash, Litecoin or Ether) can be acquired or sold may constitute proprietary trading or financial commission business in the sense of the German Banking Act (KWG). BaFin furthermore pointed out that both proprietary trading as well as financial commission business are activities that are subject to an authorization requirement in Germany so that engaged operators are required to obtain a corresponding authorization prior to the start of the respective activity. Furthermore, BaFin explicitly stated that the unauthorized operation of crypto ATMs constitutes a criminal offence that can also be stopped by the authority by way of administrative compulsion. Sealing of ATMs as happened recently in the case of the “shitcoins.club“ is therefore a viable measure that the authority can take to stop and prevent illicit activities. Even persons and businesses that are merely involved indirectly in the operation of crypto ATMs will be targeted by the authority. In this regard, BaFin pointed out that the supply of venues as well as the provision of electricity or internet access for supporting the operation of crypto ATMs may constitute illicit supportive activities which BaFin is authorized to stop by coercive measures.

OPERATION OF CRYPTO ATMS IS POSSIBLE IN GERMANY

In the last couple of months there have been numerous reports in the relevant media stating that the operation of crypto ATMs in Germany is either unwelcome by BaFin or even outright prohibited. These statements are not correct, as can be seen from the latest publication of BaFin on this subject. Quite contrary to the aforementioned reports, the operation of crypto ATMs is possible and legal in Germany as long as the operator of the ATMs abide by the regulatory rules. The placement and operation of crypto ATMs in Germany requires a certain degree of professionalism of the operator, because crypto assets are regulated as financial instruments in the sense of the KWG. The operator is required to have an appropriate business structure with a sufficient internal control, a fit and proper managing director as well as sufficient starting capital and equity for the intended activity. Operators that meet these criteria will be granted an authorization from BaFin for the operation of crypto ATMs if they apply for it and can therefore legally operate crypto ATMs in Germany. Market participants that do not abide to the current regulatory law will be brought to heel by the competent administrative and law enforcement authorities.

OPERATION OF CRYPTO ATMS MAY ALSO QUALIFY AS INVESTMENT BROKERAGE

Unfortunately, the recently published opinion of BaFin falls short. The operation of crypto ATMs cannot only be conducted as either proprietary trading or a financial commission business. Instead, operators can also act as mere investment brokers, if they do not trade crypto assets with the ATM users for account of their own books but on behalf and for the account e.g. of a bank or an appropriately authorized financial institute. The crypto ATMs do not necessarily have to be connected to the crypto wallets of the technical operator. In such cases, the activity of operating a crypto ATM may also be considered as investment or acquisition brokerage which both place considerably lower regulatory requirements than proprietary trading or the financial commission business on the operator. The mere technical operation of an ATM without any commission or brokering activity might in certain cases not require any form of authorization at all. In these cases, the technical operator should nevertheless consider the aforementioned fact that his contribution to the ATM operation may be considered as a supportive activity to illicit activities of the actual operator. The technical operator should therefore make sure that the actual operator of the crypto ATM is authorized for his activity by BaFin.

Attorney Lutz Auffenberg, LL.M. (London)

I.  https://fin-law.de

E. info@fin-law.de

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